NEWARK, N.J. -- Toys "R" Us Inc. swung to a profit in the second quarter from a loss a year ago, buoyed by a reversal of $200 million in income tax reserves. But its sales fell 3.9 percent.
The earnings report, released Monday, is the Wayne-based company's first statement since its Aug. 11 announcement that it is considering selling its worldwide toy business in the wake of fierce competition from discounters, particularly Wal-Mart Stores Inc.
The company, which is the nation's second-largest toy seller behind Wal-Mart, added little information about its plans, which include a possible spinoff of its fast-growing Babies "R" Us division, which sells furniture, apparel, as well as accessories.
For the three-month period ended July 31, Toys "R" Us earned $61 million, or 28 cents a share. That compared with a loss of $11 million, or 5 cents a share, a year earlier.
The reversal in income tax reserves helped offset pre-tax charges of $228 million related to restructuring, markdowns and store closings.
Total sales were $2.02 billion, down from $2.10 billion in the year-ago period.
In the U.S. toy business, same-store sales, or sales at stores open at least a year, declined 7.7 percent. Same-store sales are considered the best indicator of a retailer's health.
At Babies "R" Us, same-store sales rose 1.8 percent.
For the first half of its fiscal year, the company reported earnings of $33 million, or 15 cents a share, compared to a loss of $37 million, or 17 cents a share.
Sales in the six-month period were $4.08 billion, down 3 percent from $4.2 billion last year.
Toys "R" Us said two weeks ago that it has hired Credit Suisse First Boston to advise it on any sale. It also plans to substantially restructure the company's headquarters, reducing operating expenses in the headquarters and U.S. toy business by more than $125 million by fiscal 2005 as compared with 2003.
The possible retreat from its core toy business comes after Toys "R Us has spent millions to renovate its stores and sought exclusive right to certain toys to differentiate itself from the discounters, whom it couldn't beat on price.
Toys "R" Us sells products through more than 1,400 stores, including 684 toy stores in the U.S. and 585 international toy stores, some 200 Babies "R" Us stores and over the Internet.
The company's shares rose 46 cents, or 3 percent, to $16.07 in late morning trading on the New York Stock Exchange.
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Toys "R" Us: http://www.toysrus.com/investor
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